WASHINGTON, Dec 4 (Reuters) - Nebraska's state government will soon announce a decision on the Keystone XL pipeline from Canada, a milestone in a long approval process, but it is unclear when the Obama administration will decide, a U.S. oil industry lobby group said Tuesday.

The American Petroleum Institute believes Nebraska could be set to bless the route as early as January, and urged President Barack Obama to quickly rule on the project, which has been wending its way through the approval process for five years.

The TransCanada Corp pipeline is designed to carry oil from Canada, North Dakota and Montana, and needs a presidential permit because it would cross an international border.

Last year, Obama put the pipeline on hold, citing environmental concerns with a portion of the route in Nebraska. The API said it is unclear when the Obama administration will take its next steps on the project.

The State Department has said it does not anticipate concluding its review before the first quarter of 2013.

Stopping the pipeline is a top issue for environmental groups. They argue the project would accelerate climate change through the development of Canada's oil sands, and plan to continue to fight it.

Nebraska's Department of Environmental Quality is slated to hold a public meeting on Tuesday evening in the tiny town of Albion, population 1,650, about 125 miles west of Omaha.

The meeting at the county fairgrounds is the last stage in gathering comments on the route for the pipeline, which was changed last year to avoid a sensitive environmental region.

After the department finalizes its report on the pipeline - which the American Petroleum Institute thinks could come by the end of December - it will give it to Nebraska Governor John Heineman for his approval.

Heineman's decision is likely to come in January, said John Kerekes, the API's central region director.

"This will conclude the longest pipeline application deliberation in history, which, with Nebraska's expected support, we believe will result in final approval for the project to commence," Kerekes told reporters.

But the timetable for the final federal review is less clear. The State Department is working on a draft "supplemental environmental impact statement" study, which it will release for public comment when it is complete.

The report will help the State Department determine whether the project is in the national interest, a decision it makes in consultation with other administration officials, considering issues such as climate change concerns and jobs.

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